FTC Busts 'Free' Sample Scams

Weight-loss supplement makers settle deceptive marketing claims

Makers of dietary supplements that lured consumers on the Internet with allegedly deceptive weight-loss claims and bogus "free" sample offers, and then debited their bank accounts or charged their credit cards for continuing shipments without their consent, have agreed to settle Federal Trade Commission charges that they violated federal law.

To get a "free" sample, consumers provided their account number to pay a shipping and handling fee, unaware that they would be enrolled in a "negative option" continuity program and billed about $100 every few months for recurring shipments of the products unless they cancelled.

In the other case, consumers who ordered a "free" sample of Woman's UltraSlim were asked to provide their credit or debit card account number to pay a shipping and handling fee, unaware that they would be enrolled in a continuity program and charged a monthly fee of almost $30 until they cancelled their enrollment.

All were charged with the following violations of the FTC Act:

• Making false or unsubstantiated weight-loss and related claims;

• Failing to disclose adequately that consumers who order a "free" sample are enrolled in a continuity program, that their accounts will be debited or charged to pay for the program, that they must cancel to avoid extra shipments and debits and charges, and how and when they must cancel to avoid the debits or charges;

• Debiting or charging accounts of consumers who cancelled or tried to cancel, or those who were not adequately informed of the negative option features or terms and conditions, and therefore did not provide express informed consent for the debits or charges.

They also were charged with violating the Electronic Fund Transfer Act and Regulation E by debiting consumers' accounts on a recurring basis without obtaining the required written authorization.

Under the settlements, regarding the marketing of any dietary supplement, food, drug, device, or health-related program or service, or of any product or service by means of a negative option feature, the defendants are barred from misrepresentations, including that a product or service is "free" or without obligation if a charge will be assessed unless the consumer cancels.

Other prohibited misrepresentations include the amount that will be charged, that a consumer will not be charged, the timing or manner of any charge, the length of any trial period before a charge will be made, and that a consumer has authorized a purchase.

The settlement with marketers JAB Ventures, LLC and Jason Brailow imposes a $7,803,425 judgment, all but $610,000 of which is suspended based on their inability to pay.

The settlement with Woman's UltraSlim marketers Complete Weightloss Center, Inc., Terry Guthmiller, and David Guthmiller imposes a $2,532,014 judgment, all but $3,000 of which is suspended due to their inability to pay.

In each case, the full judgment will be imposed if the defendants are found to have misrepresented their financial condition.

A Washington, D.C., reporter for more than 30 years, Jim Limbach covers the federal agencies for ConsumerAffairs. Previously, he was a reporter and news anchor for Associated Press Broadcast Services, where he covered business and consumer news as well as space shots and other major spot news events.
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